INTRODUCTION
The Supreme Court has recently in The Oriental Insurance Co. Ltd. vs. Malana Power Company Ltd held that an insurance company is not allowed to repudiate the claim of the insured by merely averring suppression and non-disclosure of material data when no evidence regarding such suppression was available on record. This case finds a landmark position in the realm of insurance disputes as it pertains to the issue of injudicious refusal of the claim by the insurance company by alleging fraud and non-disclosure of material facts concerning the subject policy.
FACTUAL MATRIX
Malana Power Company Ltd(“The Respondent” or “the insurer”) which runs a Hydro Power Project obtained an insurance policy worth Rs 10 crores from Oriental Insurance Company Ltd (“The Appellant” or “the insured”) for the period commencing from 07.07.2002 to 06.07.2003, covering the shortfall that may arise in annual power generation due to failure of hydrology. Since the Appellant could not re-insure the policy in the reinsurance market, it advised the Respondent to reduce the amount insured to Rs 5 crores from Rs. 10 crores. But the said proposition was denied by the respondent. Consequently, the appellant canceled the policy with effect from 27-11-2002 and made a pro rata refund of the premium. Thereafter, the respondent, under the policy, claimed an amount of Rs.4,68,33,840 with the appellant for the losses suffered due to shortfall in production of electricity till 20-11-2002. The appellant repudiated the claim contending that the respondent had fraudulently suppressed the hydrological data of that project of the previous year. Aggrieved by the denial, the respondent approached the National Consumer Disputes Redressal Commission, New Delhi (hereinafter ‘National Commission). The National Commission has allowed the claim of the respondent and directed the appellant to pay the said amount with interest thereon. Aggrieved by the order of the National Commission, the appellant preferred the present Civil Appeal before the Supreme Court.
LEGAL ISSUES INVOLVED:
The issue which arose out of the case :
Whether an insurer can repudiate a claim raised by the insured by simply alleging suppression & non-disclosure or fraud when no such suppression is inferable to the insured?
DECISION
The Counsel for Appellant contended that the respondent had obtained the policy by playing fraud and suppression, as such, the respondent is not entitled to make any claim against the appellant. He alleged non-disclosure of hydrology data of the year 2001-02 by the respondent before obtaining the policy despite the same being available with the respondent.
While dealing with the issue, the Division Bench of Justice R. Subhash Reddy and Justice Hrishikesh Roy, noticed the fact that the respondent had submitted available data. Further, the appellant did not ask for the hydrology data for the previous year despite having knowledge of the fact that such data was not available on record. Hence, in this respect, it cannot be said that there was suppression of facts or fraud. The court also emphasized the fact that the insurance policy was not canceled by the appellant on account of any fraud or suppression of material facts. The reason disclosed for such cancellation was the non-availability of reinsurance on the reinsurance market and the refusal of the respondent to reduce the insured amount to Rs 5 crore from Rs 10 crore. It is pertinent to note that the appellant had made allegations regarding such suppression of facts or fraud neither in the letter demanding reduction in insured amount nor in the proceedings for cancellation of the policy. Had there been any suppression or non-disclosure as pleaded, the appellant would have canceled the policy only on such grounds. Therefore, the Apex Court confirmed the decision of the National Commission and dismissed the appeal.
CONCLUSION
Insurance policies have unilateral contract traits. In the case of an insurance contract, the insurer promises to pay the insured amount if certain events occur in terms of the contract of insurance. So, disputes between the insured and the insurer ordinarily emerge when there is a denial of the insured’s claim either partially or in full. This case enunciates the position that the insurer cannot repudiate claims by the insurer by alleging suppression & non-disclosure or fraud, when no suppression or fraud is in fact attributable to the insured. Here, the Court points out that contractual conditions should not prevent the insurer from considering genuine claims and this decision will help to curb the unfair practices in the insurance sector. The legal decision in the present case will be held in esteem by the insurance litigants.
